Earnings Call Transcript
Ibotta, Inc. (IBTA)
Earnings Call Transcript - IBTA Q4 2025
Operator, Operator
Good afternoon, and welcome to Ibotta's Q4 2025 Earnings Conference Call. With us today are Bryan Leach, Founder and CEO; and Matt Puckett, CFO. Today's press release and this call may contain forward-looking statements. Forward-looking statements include statements about our future operating results, our guidance for Q1 2026, our ability to grow our revenue, factors contributing to our potential revenue growth and the capabilities of our offerings and technology, all of which are subject to inherent risks, uncertainties and changes. These statements reflect our current expectations and are based on the information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release and our 10-K, which are available on our Investor Relations website at investors.ibotta.com. Also, during the call today, we will be referring to the slide deck posted on our website. Unless otherwise noted, revenue and adjusted EBITDA comparisons to prior periods are provided on a year-over-year basis. With that, I'll turn it over to Bryan.
Bryan Leach, CEO
Good afternoon, everyone. Thank you for joining our discussion of fourth quarter results. We're pleased to report fourth quarter revenue and adjusted EBITDA that are both above the top end of the guidance range we provided on our third quarter earnings call. This represents an improvement in year-over-year revenue trends when compared to the third quarter. Based on the trends we saw in our business in the second half of Q4 and quarter-to-date, we are also guiding to first quarter 2026 results that are above our previous expectations. There were three main drivers of our fourth quarter outperformance: improved execution, the strengthening of our core product and the continued expansion of LiveLift. Let me give you an update on each. In terms of improved execution, here are a few specific things we've been focused on. First, we leveled up our sales leadership, bringing in elite talent from the digital media space. Second, we restructured and reorganized our sales organization. This included rebalancing our account loads and verticalizing our teams to better speak the language of our clients' industries. Third, we emphasized a consultative approach that ensures our team is providing a solution that meets our clients' needs. We're doing a better job of getting further upstream in client strategic planning and budgeting cycles. This involves building relationships, not just with the procurement department and promotion centers of excellence, but also with brand leaders and senior executives such as CEOs, CMOs and CCOs, Chief Commercial Officers. Fourth, we overhauled our B2B marketing function. That team is enabling our sellers to be more timely, relevant and proactive in their outreach. For example, when the SNAP program underwent significant changes for millions of U.S. consumers, our B2B marketing team developed a fourth quarter playbook, which allowed our sellers to quickly communicate how clients could respond using the Ibotta Performance Network. This initiative generated additional revenue, solved a real problem for our clients and helped consumers in a time of need. Fifth, we addressed the concern that CPGs have never had access to independent third-party measurement. For the first time, we made it possible for our clients to purchase sales lift studies just as they would for other forms of digital media. In the third quarter, we announced our partnership with Circana. And then last quarter, we added ABCS Insights, giving our clients another choice of measurement partner. Based on early feedback, it appears that the availability of third-party measurement is helping our sellers build trust with our clients. In addition to better sales execution, we strengthened our core product offering in important ways. Here are some examples of the improvements we made. One, setting clearer goals for each campaign in advance; two, focusing on the incremental sales our campaigns deliver; three, improving the profitability metrics that we use to measure our campaigns; and four, revisiting our approach to pricing, including tying our fees more clearly to the price of the products being promoted. I want to stress that these things I just mentioned are not LiveLift per se. They are simply an evolution of our industry-leading core product. We are now seeing clients lean into these core capabilities, which is improving offer supply and driving the recent trends we've seen in our redemption revenue. LiveLift is best understood as a set of next-generation capabilities that allow clients to see the projected incremental sales and cost per incremental dollar (CPID) at various intervals during their campaigns, thereby enabling them to better optimize the performance of those campaigns. A helpful way to think about LiveLift is using the following analogy. Our core product is like a best-in-class luxury car. It's already seen as the leading performance vehicle in the category. Each year, there's a new and improved model, making it an even better, higher-performing car. LiveLift is like a powerful new feature that is added on to the vehicle for certain customers, say, for instance, like autopilot. That feature enhances the car's performance, and it also generates buzz and excitement. It continues to improve as well over time until it more closely resembles something like fully autonomous driving, which holds the potential to transform how we think about driving itself. So the operative question is not how fast can Ibotta transition clients away from its core product and into LiveLift, but how much can Ibotta grow revenue based on the strength of its continually improving core product? And then how much can LiveLift further accelerate that growth and ultimately transform the category. Clients whose campaigns meet certain criteria — for instance, they're spending a certain amount and the campaign is running for a certain duration, are eligible to pilot and adopt these exciting new LiveLift capabilities. As we continue to improve the models that power LiveLift and work towards greater automation, we expect that more and more clients will take advantage of these features over time. In terms of the limited number of clients who've already piloted LiveLift, the feedback has been extremely positive. As we shared on our last earnings call, we launched more LiveLift campaigns in the fourth quarter than we did in the first, second and third quarters combined. We also exceeded our revenue forecast associated with LiveLift for the fourth quarter. Of the clients that have executed a LiveLift campaign, we expect to see about 80% expand or renew their campaigns. In summary, we believe our performance in the fourth quarter and our continued momentum in the first half of the first quarter confirms that thanks to our team's hard work, we are very much on the right track. As we look out to the future, we envision our CPG clients allocating resources in a manner that more closely resembles that of digitally native companies. Today, most still rely heavily on the annual planning and budgeting process, whereby they agree to place certain bets over the course of the upcoming year, then measure the outcome of those bets six to twelve months after the fact. We believe this way of working is fundamentally incompatible with the goal of harnessing the full power of artificial intelligence. Instead, we see the CPG industry moving into what has been called the outcomes era. Going forward, we believe CPG clients will determine what their desired outcomes are and input any constraints or conditions that are important to them. For instance, they might want to gain three points of market share, but they want to do so without eroding profitability or they might want to put in place a standing rule that they want every incremental dollar they can get as long as it doesn't cost them more than $0.35 per incremental dollar. Once these goals are outlined, what constitutes a winning outcome will be clear, and it will be possible to test a larger number of offer permutations and solve for whichever combinations yield the best results. This is what artificial intelligence is especially good at doing. We expect that the faster a CPG company transitions away from annual discrete allocations of dollars to outcomes-driven rule-based resource allocation, the more agile it will become and the better it will be able to translate its investments into market share gains. In closing, we remain focused on delivering unrivaled value to our CPG partners. By bringing the proven principles of performance marketing to the CPG industry, we believe we can capture a greater portion of the total addressable market for CPG marketing spend beyond what has historically been available to promotions. We're confident that the combination of a stronger core offering alongside more LiveLift campaigns will help Ibotta return to year-over-year revenue growth later this year. We're beginning to see the fruits of all the hard work our team put in during 2025, and we look forward to what lies ahead in 2026. With that, let me turn it over to Matt.
Matthew Puckett, CFO
Thank you, Bryan, and good afternoon, everyone. Jumping straight into Q4 results. We delivered revenue and adjusted EBITDA that were respectively, seven percent and thirty-one percent above the midpoint of the guidance range we provided on our third quarter earnings call. To unpack our top line results in the quarter, revenue was $88.5 million, a decline of ten percent versus last year. Within that, redemption revenue was $78.5 million, down five percent year-over-year. We saw broad-based sequential progress in our year-over-year redemption revenue trends throughout the quarter. In addition, LiveLift revenue was better than projected and the SNAP program that Bryan referenced in his remarks also resulted in incremental revenue versus our forecast. I'll just add, when we talk about improving execution, the SNAP program is a great example of that in action. From ideation to the building of the program to selling it in to the marketplace and having an impact on business performance, great work by our team. Third-party publisher redemption revenue was $56.4 million, up eight percent versus last year, while direct-to-consumer redemption revenue was $22.2 million, down twenty-six percent year-over-year, where, as anticipated, we've continued to see more redemption activity shift to our third-party publishers. Ad and other revenues, which represented eleven percent of our revenue in the quarter were $10 million, down thirty-eight percent versus last year due primarily to continued pressure on direct-to-consumer redeemers. Turning now to the key performance metrics supporting revenue. Total redeemers were $20.4 million in the quarter, up nineteen percent year-over-year. We saw continued growth in third-party redeemers across the IPN versus last year, highlighting the health of the demand side of our network. Growth was driven by the launch of DoorDash in the second quarter of 2025, organic growth at our existing publishers and the launch of Instacart in November of 2024. Redemptions per redeemer were 4.6, down sixteen percent versus last year, where the decline continues to be driven by both the quantity and quality of offers available to each redeemer as well as the growth in third-party redeemers, which have a lower redemption frequency compared to our direct-to-consumer redeemers. It is worth noting this represents an improvement in trend versus Q3 where redemptions per redeemer were down twenty-eight percent year-over-year. Redemption revenue per redemption was $0.83, down five percent versus last year, driven primarily by slightly lower like-for-like fees and the mix of redemption activity. Now shifting to the cost side of our business. As anticipated, non-GAAP cost of revenue was up $3.6 million versus a year ago, driven by an increase in publisher-related and technology costs. This resulted in Q4 non-GAAP gross margin of seventy-nine percent, down approximately five hundred seventy basis points versus last year. Over the course of 2025, we've seen a meaningful increase in costs related to new publishers as well as an increase in technology-related costs within cost of revenue, which is reflective of an increased investment in product development. Non-GAAP operating expenses were up one percent versus last year and slightly above our expectations due to higher professional fees and variable compensation. This resulted in non-GAAP operating expenses being sixty-five percent of revenue, an increase of approximately seven hundred basis points year-over-year due to the lower revenue. Within that, non-GAAP sales and marketing expenses were flat as lower marketing spend offset higher labor and the cost of third-party lift studies. Non-GAAP research and development expenses decreased by eleven percent, primarily a result of higher capitalization of software development costs. This is due to more of our investment in R&D being directly focused on product development. Lastly, non-GAAP general and administrative expenses increased by sixteen percent, reflecting higher professional fees and temporarily higher facilities costs in the quarter. Similar to last quarter, while overall non-GAAP operating expenses changed minimally year-over-year, our investments in areas related to our transformation, inclusive of both the P&L and what is being capitalized to the balance sheet were up in the quarter. This increase was approximately fifteen percent and again was headlined by higher labor costs in both the sales and technology organizations. We delivered Q4 adjusted EBITDA of $13.7 million, representing an adjusted EBITDA margin of fifteen percent, adjusted net income of $8.1 million and adjusted diluted net income per share of $0.29. Our adjusted net income excludes $12.9 million in stock-based compensation and includes a $3.8 million adjustment for income taxes. We ended the quarter with $186.6 million of cash and cash equivalents. In Q4, we spent approximately $55 million, purchasing approximately 2.1 million shares of our stock at an average price of $25.78. We had 26.1 million fully diluted shares outstanding as of twelve thirty-one. And as of the end of the quarter, we had $34.9 million remaining under our current share repurchase authorization. Now turning to Q1 guidance. We currently expect revenue in the range of $78 million to $82 million, representing a five percent year-over-year decline at the midpoint. And we expect Q1 adjusted EBITDA in the range of $6 million to $8 million, representing about a nine percent adjusted EBITDA margin at the midpoint. With that, let me provide a little more color on what we anticipate the shape of revenue for 2026 to look like. First off, we are pleased with the improvement in execution, the upgrades to our product capabilities in our core business and the growing contribution of LiveLift. We expect that this will gradually translate into improving revenue trends, just as we began to experience in Q4. Beyond our specific Q1 revenue guidance, we anticipate low single-digit sequential revenue growth in Q2 versus Q1 and then to generate slight year-over-year revenue growth in Q3. We believe the anticipated improvement in our revenue trajectory will primarily show up in redemption revenue, while ad and other revenues will remain under pressure. Part of the story here is that ad and other revenue continues to shrink as a percentage of total revenue, meaning the drag on the aggregate business should become smaller. In addition, within ad and other, the data business is expected to grow and become a larger percentage of that total. While we are working hard to improve the offer supply to the point that direct-to-consumer redeemers stabilize, we haven't assumed that in our planning for 2026. As it relates to the cost side of the equation, there are a few things to note. While in some aspects, we outperformed on costs in 2025, it's important to recognize that we faced greater vacancy rates than we would typically see, particularly within the sales team, where we expect to be more fully staffed for the entirety of 2026 across that organization. In addition, we saw lower variable compensation expense during 2025. As we mentioned last quarter, we are committed to investing in areas critical to our transformation, which will show up in both higher year-over-year cost of revenue and non-GAAP operating expenses in 2026. From a modeling standpoint, you should expect to see a modest sequential increase in quarterly non-GAAP cost of revenue and operating expenses throughout the course of the year; however, we expect to have substantially less growth in publisher-related costs within cost of revenue as compared to what we saw in 2025. It's not going to be zero growth, but it likely won't be nearly the headwind we faced last year. We also expect higher technology costs and cost of revenue, which is partially a function of where these costs are allocated relative to last year to have approximately a negative one hundred basis point impact on gross margins. As it relates to non-GAAP operating expenses, one area I would reiterate where we are investing is third-party measurement. We expect to purchase on behalf of our clients a significant number of third-party lift studies from our measurement partners that will allow them to independently validate the incremental sales lift of our platform. This number could approximate one percent of revenue in the near term, but would likely moderate over time as we substantiate the benefits of our platform and in some cases, shift the cost of these studies to our clients. A few other data points to mention as it relates to the full year 2026. We expect stock-based compensation expense to be approximately $10 million higher than 2025. And as it relates to cash generation, we expect free cash flow to be approximately sixty-five percent of adjusted EBITDA. And finally and importantly, we exit 2025 with a healthy balance sheet and no debt. And that, in conjunction with continued free cash flow generation, gives us the flexibility to continue investing in the organic growth and strategic priorities of the business and at the same time, return cash to shareholders. As I hope you can tell, we are energized by what lies ahead. In 2026, we expect to move from a year of transition and learning to a year of greater consistency and execution. While there's still significant work ahead, we feel good about the progress we're making today, optimistic about our trajectory moving forward and confident we'll see an inflection to revenue growth later this year. With that, operator, let's please open up the call for Q&A.
Operator, Operator
Our first question comes from Ron Josey with Citi.
Jamesmichael Sherman-Lewis, Analyst
This is Jamesmichael Sherman-Lewis on for Ron. First off for Bryan, could you elaborate on the relationship between the core product and the new LiveLift solution and how you see each of these offerings progressing? And then I have a follow-up.
Bryan Leach, CEO
Yes. Thanks, Jamesmichael. Happy to. We've been learning a lot over the last year in the market, listening to our clients and focusing on how we can improve the core offering of Ibotta, and we've made some broad improvements that I alluded to in my remarks that I think have made clear that what we deliver is profitable revenue growth. And that's things like focusing on incremental sales, focusing on the cost per incremental dollar, providing access to third-party measurement, and thinking differently about our approach to pricing. And those are things that are applied across the board to our foundational promotions. Then there's this capability we call LiveLift, which is all those things plus the capability to project and measure profitability, incremental sales on a more regular cadence during the campaign and then be able to use that to optimize those campaigns to taking into account those metrics as they're evolving. And that's what we mean when we say LiveLift is that sort of most sophisticated capability, which is where we see the industry heading. But I want to stress that we've got a very popular and getting better all the time core product that is driving most of the outperformance that we described just now.
Jamesmichael Sherman-Lewis, Analyst
Great. Thank you, Bryan. Moving on to the go-to-market transformation. With the new sales leadership and the sales reorg in place for a full quarter, could you share an update on the evolution of your client approach and any specific benefits from verticalized teams or the more consultative approach?
Bryan Leach, CEO
Yes. I think I made some high-level remarks about this. And we're doing a much better job in terms of understanding our clients' industries in detail, meeting them where they are, being proactive and timely with our outreach so that when they're confronting something in the market that arises, we're in there with a potential solution. I think it's fair to say we're further upstream with a lot of these clients, going beyond just the procurement department, going beyond just the center of excellence that's traditionally bought, things like digital promotions and really encouraging the senior leaders of these organizations to take a step back and think about this concept of the outcomes era and this idea of how they can take advantage of being able to set targets and metrics for things like profitability and market share growth and then allowing the power of artificial intelligence to, over the coming years, make their businesses more and more efficient and profitable. I think that we refer to internally as multi-threading, the idea of reaching out to different parts of the organization simultaneously at different levels within that org. I think that's been paying dividends.
Matthew Puckett, CFO
Yes. James, I'll just add that the questions you asked kind of hit on the three areas around core product, LiveLift, and execution. And all three of those areas the results we saw in Q4 were greater than what we were forecasting. So we saw all of that benefiting our financial results in the quarter, which is really encouraging.
Operator, Operator
Our next question comes from Bernard McTernan at Needham & Company.
Bernard McTernan, Analyst
Maybe just to start, I want to start on the macro. And Bryan, just the sentiment of your clients right now as we enter the year. I think the macro last year was characterized by a lot of uncertainty. How does this year compare to what you're hearing?
Bryan Leach, CEO
Yes. I mean I think there's different kinds of uncertainty, I suppose. Bernie, there's still some conversation that we're hearing about things like tariffs, but I think that people have adjusted their businesses for that. And that's not a primary factor, I would say, in people's evaluation of whether to invest with Ibotta. I think now there's a lot of focus on what does the acceleration of AI mean for the industry? How does it present opportunities for these companies to think differently and to gain a competitive advantage to regain market share after they have lost to private label a certain amount of market share? I think that there's a real emphasis on value still. We put out a state of the spend report recently that underscored this very, very clearly that a high percentage of consumers go into the store with their minds still open about what they want to buy and they want to decide that primarily based on value. And I think that message has gotten across to the CPG companies. And then there's some conversation about other ways in which consumer shopping may evolve, things like agentic shopping, where we think we're particularly well positioned. And they're thinking about, okay, what does that imply in terms of the kinds of investments I want to make and things that affect value and ultimately, the price and promotion, those are core foundational things that they know they need to spend more time focused on. So I think we're well positioned in terms of the macro at the moment, broadly speaking.
Bernard McTernan, Analyst
Yes. And Bryan, that was one of the things I wanted to ask on was agentic commerce and how you think you're situated. And is it too early to be having conversations with some of the LLMs to see if there can be integration opportunities there? Or is that something that should be further down the future?
Bryan Leach, CEO
It remains to be seen how this will unfold. We do have some shopping agents on retailer websites, and Walmart shared some data about that in their recent earnings call. Some believe that these large language models will aggregate demand and serve as a gateway for shopping. Our strategy is clear: we want our content to influence the algorithms wherever purchase intent arises for these nondiscretionary items. The availability of offers on the Ibotta Performance Network is another reason why being part of it is crucial. It's still too early to determine the overall impact, but I believe the retailers in our network will play a significant role in the future of agentic commerce. This makes our direct relationships with them even more powerful, as we can ensure our content is accessible at all consumer touchpoints, whether in-store or online.
Operator, Operator
Our next question comes from Alexander Vegliante with Goldman Sachs.
Alexander Vegliante, Analyst
This is Alex on for Eric Sheridan. Congrats on the really solid quarter. I just want to dig in a little bit more on the third-party redeemer results, really strong results, both sequentially and year-over-year. I know you mentioned really all of your publisher partnerships humming along. But are there any like one to two drivers of that really strong sequential growth? Or is it sort of all of your partners continuing to have success?
Bryan Leach, CEO
We're experiencing success with all of our third-party publishers in various ways. Last year, we launched DoorDash, which was a significant addition to our network and was rolled out gradually. We're also seeing our current publishers find different ways to engage with the content. For instance, they are emphasizing in-store awareness for shoppers, perhaps through in-store modes that highlight this content, or experimenting with messaging through audio or visuals in the store. These efforts are still largely in the testing phase, but as they become more widespread, we should see an increase in awareness of this content in physical stores. Additionally, e-commerce is on the rise; for example, Walmart has reported strong growth in their U.S. e-commerce and specifically in grocery e-commerce, which benefits us as more people discover this content. We're continuously collaborating with our publishers to enhance our ability to present the right offers to the right consumers, which boosts conversion rates. All these factors contribute to the growth of third-party redeemers recently.
Alexander Vegliante, Analyst
Really helpful. And then yes, go ahead, please.
Matthew Puckett, CFO
Yes, I'll just add to give you a little bit of quantification, I think what validates is we actually grew, as you can see, obviously, in our numbers, we grew third-party redeemers by almost 3.5 million in the quarter and about one-third of that was from existing publishers. So it wasn't a small increase in existing publishers, which highlights, I think, numerically the points Bryan was making.
Alexander Vegliante, Analyst
That's really helpful. One more question if I can. You mentioned that fees are becoming more connected to the underlying price of the items. Is this a new policy you've been implementing? Is it coming from your CPG partners, or is it something you're more proactively pushing? How can diversifying the types of items you offer compensate for that going forward?
Bryan Leach, CEO
Yes. I mean I think everything comes from our CPG partners in the sense that we listen to our clients, right? And we did a lot of that over the last eighteen months and took a step back and said, how could we be a more client-centric organization? And there are many ways in which I alluded to us doing that. But on the topic of pricing, we wanted to have a more continuous approach to pricing. So rather than having a tiered system where if you're on one side of the tier or the other side of the tier, there could be a meaningful step off in terms of the fee per redemption that you're paying to have a percentage of the price of the product is just more logical, right? It doesn't have those kind of breaks in it. And that also makes sense when you are beginning to think about automation and optimization, being able to have a simpler, more universal form of rules for pricing rather than differentiated depending on category or client. Just as you think about it more broadly, it's part of a larger effort for us to streamline, automate, and that really starts with standardizing our approach and making sure it's the one that fits the next chapter of how we want to serve our clients. I think that has been very well received by our clients. I wouldn't say that our clients specifically demanded that. I think we took a step back, like I said, and said what would be better for them and came up with this approach, and it's been well received to date.
Operator, Operator
Our next question comes from Ken Gawrelski with Wells Fargo.
Kenneth Gawrelski, Analyst
I have a couple of questions, if I may. First, Bryan, can you discuss the LiveLift sales cycle? You mentioned moving the CPG industry away from the annual budgeting cycle. Can you provide an update on your progress in shortening the LiveLift sales cycle? Additionally, you previously talked about a lot of testing and learning. Are you observing any acceleration in adoption or time to market within those sales cycles? That's my first question. My second question is about your long-term perspective. Considering the historical IPN third-party business compared to the more LiveLift-oriented business, do you expect similar profitability? Or are there any factors we should consider in terms of cost of goods sold or profitability in your new go-to-market strategy over the long term, rather than in the short term?
Bryan Leach, CEO
Thank you, Ken. I'll address your questions one at a time. Regarding LiveLift, we're pleased with its progress, which has exceeded our expectations in several areas. Notably, the number of companies experiencing LiveLift saw more pilots in the fourth quarter than in the previous three quarters combined, giving us broader feedback from diverse clients on their perceptions and how it influences their promotional strategies and their relationship with Ibotta. Additionally, we've observed that the average campaign size for LiveLift is significantly larger than that of the standard Ibotta offering from the same clients. This increase in investment reflects the excitement surrounding LiveLift, allowing us to engage higher-level decision-makers who are willing to commit to larger investments. If the pilot performs well, we expect even greater commitments. Clients view LiveLift as a driver of profitable revenue growth rather than just a necessary tactic due to merchant influence. This shift in mindset contributes to the increased spending per campaign. To qualify for LiveLift, clients must undertake longer or larger campaigns, allowing us to gather adequate data to confidently present LiveLift's statistics. This requirement encourages clients to invest more, which has been significant. When we previously reported an 83% re-up rate, it was based on a smaller sample size, and we have seen more activity in the fourth quarter than before. Maintaining around an 80% re-up rate is a strong indicator. The remaining 20% includes smaller emerging brands that, while they value LiveLift and wish to continue, may not currently have the budget to invest at the necessary level. None of our LiveLift clients have indicated dissatisfaction with the value proposition, and external research supports this sentiment. As clients use LiveLift more, they establish a baseline, grow their enthusiasm, and confirm the goals we set together. They are likely to return for additional campaigns without requiring as much lead time as before due to their familiarity with the product. As their confidence in results grows—possibly reinforced by independent lift studies—we expect those familiar clients to introduce LiveLift to other brands or expand its usage in their larger plans. We foresee an acceleration in usage, especially as we continue to automate our processes, which will enable us to offer this product to a larger client base. Regarding your second question about profitability in the long term, we believe the characteristics will remain consistent. Our vision is to steer the market toward LiveLift, which we see as the future direction for the industry. We anticipate that as we make LiveLift available to most of our clients, they will embrace it without any price premium, encouraging them to invest significantly more than they have in the past.
Operator, Operator
Our next question comes from Mark Mahaney with Evercore ISI.
Mills Austin Riddick, Analyst
This is Austin Riddick speaking for Mark Mahaney. I apologize if I missed it, but I wanted to ask what economic changes LiveLift brings. Is it increasing conversion, improving pricing power, reducing churn, or expanding the total addressable market? Also, what milestones should we track in 2026?
Bryan Leach, CEO
Yes. I want to emphasize the differences between this and our regular Ibotta core capabilities. The key distinction lies in the ability to obtain a projected range of incremental sales and a projected cost per incremental dollar before launching a campaign, and then to regularly monitor the campaign's performance in terms of profitability, specifically incremental sales and cost per incremental dollar. This allows for optimizations and adjustments to the offer parameters during the campaign based on those profitability metrics. We've always provided access to performance metrics during a campaign, such as its pace and the number of redemptions, but LiveLift introduces a more frequent review of profitability, offering users a greater sense of control and optimism. With these adjustments, for instance, if the goal is $0.30 cost per incremental dollar but you're trending towards $0.40, you can modify the offer to become less generous or change the threshold to better align with your target. In contrast, if you're coming in at $0.15 and missing out on potential revenue, you should adjust the parameters to capture additional profits according to your pre-defined threshold. This approach with LiveLift is innovative and significantly broadens the total addressable market over time. In the past, promotions were mainly viewed as tools for boosting sales or launching new products, but we want the industry to see them as a key driver of profitable revenue growth. This change in perception addresses the historical biases from the era of paper coupons and will help mainstream our category in the considerable financial ecosystem of trade, marketing, and media in the CPG industry. We are already leaders in this space, and this reframing helps elevate the category while expanding the total addressable market in the process.
Operator, Operator
Our next question comes from Nitin Bansal with Bank of America.
Nitin Bansal, Analyst
In Q4 and so far this quarter, have you noticed any shifts in budget allocation or renewal patterns that might indicate trends for the rest of the year? Additionally, as we look ahead to 2026, what are the key components of your strategy that still need to be implemented to fully execute your plan, especially the aspects that you can control?
Bryan Leach, CEO
Thanks, Nitin. I'll address your questions. Firstly, we've seen an increase in companies testing and piloting our services, with most expressing satisfaction, leading them to want to expand their campaigns. This suggests they will continue and increase the variety of brands they introduce. We also noticed companies allocating additional budgets to existing brands or adding more brands to the program. When we introduced this mid-quarter, many expressed interest in using it to close current sales gaps, and we were able to implement it within a week. This serves as a positive indicator of its value. We've seen this momentum continue, which is why we're raising our projections for the current quarter. Regarding your second question about necessary elements for future execution, there are several things to address. First, the industry has traditionally operated with specific ways of thinking about promotions, resource allocation, and measuring tactics. We are trying to change that mindset. Our vision is to enable companies to define outcomes from the start, similar to digitally native businesses, and utilize increasingly sophisticated systems to achieve those outcomes. This change requires agility and clarity on the rules needed to leverage these technologies. It's uncertain how fast this behavioral shift will occur, but we're actively leading industry conversations, promoting the benefits of these tools, and encouraging companies to try them. Additionally, we must continue to standardize and automate our systems for better accommodation. Currently, a small number of the thousands of brands using Ibotta are testing LiveLift because we're focused on making our processes easier—setting up offers automatically, reporting accurately and rapidly, and projecting in a scalable manner. As our models process more data, our predictions will improve, allowing us to expand accessibility. We're currently setting these conditions in the market, and we'll work on making this a larger part of our offerings in the future.
Operator, Operator
Our next question comes from Stephen Ju with UBS.
Stephen Ju, Analyst
So Bryan, it seems that the third-party redemptions per redeemer have reached their lowest point sequentially and are starting to rise, although they are still below last year's levels. Do you believe that returning to last year's figures and beyond will simply require a normalization of CPG ad budgets? What discussions are you having with your clients to create offers that will be more appealing and attractive to redeemers, especially considering the quality versus quantity balance in what you're presenting to them?
Bryan Leach, CEO
Yes, I'll respond to that, and then I'll let Matt provide some supporting data regarding that statistic. What I would emphasize is the importance of offer supply. The greater the number of offers, particularly high-quality offers that remain available on our network longer, the more redemptions we can expect per redeemer. A higher percentage of the basket that is utilized leads to more individuals taking advantage of these offers, which in turn increases our revenue, reflected in that metric. I believe everything I outlined on this call aims to foster an environment where our sellers, alongside their improving execution, can thrive and generate more offer supply. This applies to our core capabilities, including better pricing strategies and enhanced measurement techniques. At the conclusion of your campaign, you'll receive insights on cost per incremental dollar and a focus on the number of incremental dollars sold. These initiatives collectively enhance the perception of our company, fostering greater credibility and continuity in our relationships. As new tools like LiveLift, which have not been previously available in this market, come into play, they further encourage the availability of offers for an extended period. However, our primary focus, Stephen, is on total redemptions and total redeemers. While a surge in new redeemers could lower the average redemptions per redeemer, an increase in overall redemptions is a positive sign. We have observed nearly a twenty-five percent year-over-year increase in redeemers, indicating strong demand for available offers. Ultimately, our core metric for compensation is based on fees per redemption, so total redemptions will always remain our priority. I’ll let Matt elaborate on this.
Matthew Puckett, CFO
Yes. I would just say, I mean, it's an outcome metric, right? And when you think about the publishers, right, and the access to consumers. And as that's grown, that impacts that metric, right? I think we all understand that. But what's really important, and I think really at the crux of your question, you said bottomed out. Certainly, we saw that number improve at least relationally quarter-over-quarter, is really kind of manifest in how we opened this call, which is great execution and in many ways, the strength of our core product and then you add on top of that, the benefits of an ever-expanding LiveLift program. All of that's factoring into more redemptions because the offer supply has gotten better. Is it where we want it to be? It is not, but it has gotten better. And I think it's really important to recognize that all of those things coming together is what we saw to help change the trend of the business in the near term and what gives us confidence as we move into 2026 with the trajectory that we're heading and our ability to see the business return to growth later this year.
Operator, Operator
Our next question comes from Andrew Boone with Citizens.
Andrew Boone, Analyst
Sticking on LiveLift. Bryan, how do you get LiveLift out to more clients? What are your key operational hurdles as you think about expanding the product more broadly? And then one of the other things you talked about was just moving off of the annual planning cycle with CPGs. Can you just help us understand how exactly do you do that? What are the key operational hurdles that you guys have in terms of moving to more always-on budgeting?
Bryan Leach, CEO
Thanks, Andrew. I'll address that now. The first step is to build our credibility as a company with our partners and ensure they recognize our core capabilities, regardless of their eligibility for LiveLift. It's important to remind them that we can connect with a Walmart or Instacart shopper right at the moment they're shopping, which presents significant opportunities. As they start to see the potential, they will notice features like third-party measurement, better pricing, and the ability to understand their cost per incremental dollar at the end of a campaign in most situations. We then engage them by suggesting that if they are willing to invest more in terms of the duration and spending for the campaign, we can provide the necessary signals for the LiveLift capability. For example, running a two-week campaign to boost sales wouldn't work for LiveLift, as we need enough purchase cycles to create matched audiences and identify statistically significant outcomes. There are limitations to that process. However, we believe we can successfully convince clients that this investment is worthwhile. If they invest in our advanced capabilities, they will receive more frequent updates and unlock benefits from our artificial intelligence sooner. It logically follows from the foundational strength of our core product. We also want to automate our systems to streamline the creation of reports and insights, which currently requires significant manual effort. If we attempted this across 2,500 brands, it wouldn't be feasible or scalable. Our focus this year is to simplify the process of setting up, measuring, and reporting offers, and provide everything within our portal so clients can access information without needing to call their representatives, which slows down efficiency. We have clearly identified market desires, and we've received strong feedback indicating a need for more of these capabilities. Initially, there may be eligibility requirements that limit access for some clients, but over time we aim to ease those restrictions, allowing more clients to utilize this product. Regarding the annual planning cycle, it's a traditional approach that needs to evolve. Clients typically follow a process where they create a hypothesis, get funding approved, execute the plan, and then measure it after a year, which is different from managing campaigns on platforms like Google or Trade Desk. Brands that understand the shifts in consumer behavior, the growth of e-commerce, and the rise of AI are starting to reconsider this approach. However, they first need to validate our methods. They are not likely to commit to ongoing spending immediately; they want to understand our measurement, methodology, and how it compares to third-party standards. There's a necessary period of due diligence before they can confidently invest more heavily. We've had instances where LiveLift partners have expressed in discussions why they wouldn't allocate more of their budgets toward this product, indicating that they are recognizing its value. While they are moving in that direction, they need to build a strong conviction since it challenges traditional resource allocation methods they have used for so long.
Operator, Operator
Our last question comes from Andrew Marok with Raymond James.
Andrew Marok, Analyst
Just one for me. Can we talk a bit about the prioritization of publisher expansion? And as you're talking about training your internal AI models, just the way that potentially expanding publisher reach could offer a little bit more in terms of diversity of signal for your internal models?
Bryan Leach, CEO
That's a great question. You're correct that adding more publishers brings significant value. It diversifies our network, increases the number of redeemers, and enhances our ability to influence these markets in a way that stands out and necessitates strategic planning. This development impacts businesses in ways that are reflected in weekly performance metrics. Additionally, having more publishers provides us with more data, enabling us to operate in various locations with different offer combinations, which, in turn, refines our models. It allows us to analyze signals more effectively over time. Essentially, with more data, we receive signals from across the economy sooner, resulting in a quicker and statistically significant understanding. Therefore, part of our strategy to advance this segment of our business is to continue expanding our publisher base and ensuring access to crucial proprietary data resources that are essential in the AI landscape. Our capability to leverage this unique data will ultimately make our solution compelling, powerful, and differentiated moving forward. This is why prioritizing publisher expansion remains critical for us.
Operator, Operator
This concludes the Q&A section of the call. I would now like to turn the call back to the management team for closing remarks.
Bryan Leach, CEO
Thank you very much to everyone for your questions and for your attention. We're excited about some of the trends that we're seeing in the business right now, and we look forward to engaging with you in the future. For those of you who will see at the upcoming investor conference next week, we look forward to your questions there as well. Thanks, everyone.
Operator, Operator
Thank you for joining today's session. The call has concluded. You may now disconnect.